Swatch Group posts 2002 sales drop 2.9%; with gains in second half

February 6, 2003byJCK Magazine

The Swatch Group posted a 2.9% drop in total revenues for its divisions (including watches, movements, and electronics) for 2002, to 4.062 billion Swiss francs ($3 billion), it says in a Feb. 5 preliminary report. For finished watches alone, the Group-among the world’s largest watchmakers, with 18 brands in all price categories-saw a 1.8% drop in sales to 2.980 billion Swiss francs (about $2.2 billion).

However, says its report, it posted 2002 sales gains “in local currencies” for all its operations, except electronics, and improved sales in 2002’s second half, despite the negative impact of the strong Swiss franc.

2002 was “a very exacting and challenging year” for the Swatch Group, says the report. “The universally hoped-for recovery of the global economy didn’t materialize as expected in the second half of the year; on the contrary, the general conditions became more difficult as 2002 progressed.”

Even so, the Group posted “substantial market share gains in a difficult year,” it reported. “2002 sales for the entire Group in local currency terms rose 2.6 % in the second half and 1.1 % for the year as a whole. Growth of the watch division in local currency terms was up 5.1% in the second half of 2002 and 3.2% for the year as a whole.” This occurred “despite global political instability, uncertain prospects for the future, subdued consumer sentiment and a Swiss franc whose value rose constantly (leading to currency exchange losses of 166 million Swiss francs, or $122.7 million),” the Group reported. “This clearly reflects the Group’s ability to adapt quickly and flexibly to changed external economic conditions.” Sustained market share growth in all segments and ongoing cost control also contributed.

“However,” cautioned the Group report, “further massive strengthening of the Swiss franc [and] prevailing geopolitical uncertainties” could have a dampening effect on its business in 2003.

In the watch division, specifically, “all the important brands showed growth in local currency terms,” says the Swatch Group, with those in the top price category “particularly strong.” Omega, the Group’s best-selling brand, continued to perform “on a high level” in 2002, with further growth in local currency terms last year. All other brands “also made their contribution.” After a difficult 2001, the Swatch brand, the Group’s signature watch, was “back on the path to growth” in 2002. The Group’s Swatch retail stores played an important role in that.

In watch movements and components production, “continuing very solid demand for watch movements” led to a 1.2% sales gain for the year, to 1.4 billion Swiss francs ($1.041 billion). In 2002, Group investments in this segment were focused mainly on the expansion of production facilities in the top price segment. Sales of low-priced movements in the Far East dropped slightly, due to “adverse currency influence and continuing pressure on prices.” The watch movement and component sector is expected to continue to do well in 2003, thanks to continuing demand for both complex mechanical watches and those in the medium and basic price categories.

The final results, plus details for each division and a balance sheet, will be published Mar. 27.